NISM V-A Chapter 5: Scheme Related Information — Practice Questions
Chapter 5 covers essential scheme-related information that mutual fund distributors must communicate to investors before and after investment. This chapter focuses on transparent disclosure of scheme details, performance metrics, risk classifications, and regulatory requirements mandated by SEBI. Understanding this chapter is critical because it directly tests your ability to explain fund offerings accurately to clients. Key concepts include: First, scheme classification (equity, debt, hybrid, solution-oriented) and their corresponding risk profiles—you must distinguish between aggressive, moderately aggressive, moderate, and conservative schemes. Second, Net Asset Value (NAV) calculation, pricing mechanisms, and how NAV fluctuations affect investor returns across different scheme types. Third, mandatory disclosures including scheme objectives, portfolio composition, expense ratios, exit loads, and lock-in periods. The chapter emphasizes that distributors cannot misrepresent scheme characteristics or performance. Additionally, understanding factsheets, Key Information Memorandums (KIM), and Statement of Additional Information (SAI) is essential for exam success. Expect questions on regulatory compliance and practical scenarios involving scheme selection based on investor profiles. Mastering this chapter ensures you meet SEBI's standards for investor protection and fair dealing.
Q1. Together, which documents form the complete 'Offer Document' of a mutual fund scheme?
ANSWER
Option C
EXPLANATION
The Offer Document of a mutual fund scheme consists of the Scheme Information Document (SID) and the Statement of Additional Information (SAI) together. The KIM (Key Information Memorandum) is a condensed summary of both documents but is not itself part of the formal Offer Document.
Q2. How often must the SID be updated as per SEBI regulations?
ANSWER
Option C
EXPLANATION
The SID must be updated at least annually and whenever there is a material change — particularly changes to fundamental attributes (investment objective, type, asset allocation) which require SEBI approval. Updated SIDs must be filed with SEBI and made available to investors.
Q3. What are 'fundamental attributes' of a mutual fund scheme?
ANSWER
Option B
EXPLANATION
Fundamental attributes include: type of scheme (open/close-ended), investment objective, asset allocation pattern, investment strategy, and liquidity provisions. Any change in fundamental attributes requires prior SEBI approval and a mandatory 30-day exit window for existing investors without exit load.
Q4. When an AMC proposes to change the fundamental attributes of a scheme, what must happen?
ANSWER
Option B
EXPLANATION
Changes to fundamental attributes require: (1) Prior SEBI approval; (2) Written communication to all unit holders at least 30 days before the change; (3) A mandatory exit window during which existing investors can redeem without exit load. This protects investors who invested based on the original scheme characteristics.
Q5. What information about risk must be disclosed in the SID?
ANSWER
Option B
EXPLANATION
The SID must disclose comprehensive risk factors specific to the scheme — market risk, liquidity risk, credit risk (for debt schemes), concentration risk (for sectoral funds), currency risk (for international funds), and others. The Riskometer must also be prominently displayed showing the scheme's overall risk level.
Q6. What is the 'asset allocation' section in the SID and what does it specify?
ANSWER
Option B
EXPLANATION
The asset allocation section in the SID specifies the permitted range (minimum and maximum percentage) for each asset class in the scheme's portfolio — e.g., 65–100% in equity, 0–35% in debt. The fund manager must keep the portfolio within these ranges. Deviations may require rebalancing within a specified period.
Q7. What happens if a mutual fund scheme's portfolio falls outside the prescribed asset allocation range in its SID?
ANSWER
Option B
EXPLANATION
If market movements cause the portfolio to drift outside the prescribed asset allocation range, the fund manager must rebalance within the timeframe specified in the SID (typically 30 days). This ensures the scheme continues to meet its stated investment mandate.
Q8. What is the 'minimum target amount' in the context of NFOs?
ANSWER
Option B
EXPLANATION
The minimum target amount is the minimum total subscription that the AMC needs to collect during the NFO period to proceed with launching the scheme. This amount, and the plan if it is not achieved (refund of money), must be disclosed in the SID. Most AMCs set this at ₹10–20 crore.